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A Preview Of SPH REIT IPO; Priced $0.85-$0.90
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By: Mr.IPO
Articles (33) Profile
SPH REIT (“SPH REIT” or the “Company”) lodged its preliminary prospectus with MAS. The draft prospectus is here. SPH is offering 83.982m units for the public offering and 224.902m for the placement tranche. The price for book building is from $0.85 to $0.90. There will be an over-allotment option of up to 55.988m units. The market cap will be around $3.101 billion.

According to the term sheet I received from my broker, the tentative time table is as follows:

Institutional book building: 10-16 July
Pricing and allocation: 17 July pm
Singapore public offer: 17-22 July (12pm)
Listing: 24 July
The joint book runners are OCBC, Credit Suisee and DBS.

Principal business
Invest in a portfolio of income producing retail properties in Asia Pacific.

Initial Portfolio

1. A 99-year leasehold property in Paragon Mall. (note that the property is actually freehold but after 99 years, the ownership will revert back to SPH). The lease will commence on the listing date.

2. A 99-year leasehold property in Clementi Mall. The lease commenced on 31 Aug 2010.
Further details as follow:

Financial Projection
Distribution yield
The first distribution will be for the period from Listing Date to 30 Nov 2013 and thereafter on a quarterly basis. The quarterly dates are as of 31 Aug, 30 Nov, 28 Feb and 31 May

Shareholders & Cornerstone investors
The cornerstone investors will hold 10% and they are:
  1. Great Eastern Life Assurance Company
  2. Hong Leong Asset Management Bhd
  3. Morgan Stanley Investment Management Company
  4. Newton INvestment Management
  5. Norges Bank
Nothing unusual or to shout about and they have no “lock-ups” anyway. I would have preferred to see more insurance companies as they will want the yield to meet policies liabilities (which are pretty paltry) anyway.
What I like about SPH REIT
  • The chance to own Paragon, one of the more “iconic” building on Orchard Road in a great location.
  • Assuming all the over-allotment is taken up, SPH still retains a 70% interest in the SPH REIT, which means interest is “more aligned”
  • Income support arrangement by Vendor for Clementi Mall. There will be a top up arrangement if income drops below $31m per annum subject to earlier of 5 years or a cap of $20m.
  • It’s a simple REIT structure
My Concerns
  • 100% occupancy. What more can you get unless the plot ratio is increased or they do some funky Assets Enhancement?
  • Selling at a slight premium to NAV (in return for the income support i supposed)
  • Relatively “less attractive” yields.
Peer valuation
The table below was prepared by JP Morgan. I wonder why Starhill REIT was excluded from the comparison listing below?  Maybe it is more diversified than SPH REIT.
I will compare this to CapitaMall trust and Starhill Global. As of today, based on Capital IQ, Starhill Global is trading at around 6.5% and at a price to book of 0.94x while CapitaMall is trading at 5.05% and a premium PB of 1.2x. If based on the above logic, investors in CapitaMall and SPH REIT should switch out to Starhill Global. ^_^
Assuming it trades within the valuation metrics implied by Starhill and Capitamall, the SPH REIT trading range will be:
between $0.77 to $0.99 (based on the yield of between 5% to 6.5%) and
between $0.85 to $1.08 based on price to book of between 0.94x to 1.2x.

My Fair Value
Assuming a yield of 5.5% to 6% and a price to book of between 1.0x to 1.1x, the trading range of SPH REIT will probably be between 82 cents and 99 cents.
I will finalize my Chilli ratings after the pricing is finalized and it will also depend on how the other REITs performed in the next few weeks. 
Mr. IPO has been covering companies listing in Singapore since July 2007. His IPO blog can be found here. All views and opinions found on his blogs are personal and can be very biased.

Please click here for more information about this author.

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